Chart of the Day: Despite Current Up-Trend, Euro Weakness Will Continue
Investing.com | Mar 18, 2019 14:55
The EUR/USD is up about 0.3% today, currently trading at 1.1357, after falling less than 0.1% yesterday. The single currency has retreated just 1% since the start of the year, but could the downward trend be reversing? Some market observers believe there are various signals pointing to possible recovery. We don't agree. We think there are other, stronger, markers indicating the slide will continue.
This optimism stems from the fact that several euro zone indicators released earlier this month, including employment, manufacturing PMI, industrial production, retail sales, and PMI numbers, beat analysts' expectations. And Credit Suisse analysts found that upside macro surprises in Europe, relative to those in the U.S., means the euro typically strengthens within the three-month period that follows.
However, we remain euro-bearish, based on the supply and demand balance, borne out by the technical patterns in the chart below.
The euro is on the rise, breaking out of a two-day congestion, resuming its rebound from below 1.12. However, this rally should be considered a correction within the downtrend. The rebound followed a new trough, below the November low, extending the downward trend.
The single currency has been trading within a descending channel since June. It has completed a Head & Shoulders continuation pattern, whose neckline it is retesting today.
Both the 50 and the 100 DMAs have provided resistance to the early-March peak, with the 200 DMA aligning at the channel top.
h2 Trading Strategies – Short Position Setup/h2Conservative traders would wait for a close below 1.1300 to demonstrate that the neckline indeed reversed from a support to a resistance.
Moderate traders would be content with a close below the neckline, below 1.1340 at the current angle.
Aggressive traders may risk a contrarian position right now, providing they understand the risk and manage their trade accordingly.
Trade Sample
- Entry: 1.1350
- Stop-Loss: 1.1370, above 50 & 100 MAs
- Risk: 20 pips
- Target: 1.1250, February lows
- Reward: 100 pips
- Risk Reward Ratio: 1:5
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